Speech by SEC Staff:
Opening Remarks before the International Institute for Securities Market Development

by

Ethopis Tafara

Director, Office of International Affairs
U.S. Securities and Exchange Commission

Washington, D.C.
April 18, 2005

Good morning. It is good to have you in Washington. On behalf of my staff and myself, I would like to wish you a warm welcome to our capitol city. I have to say that holding the Institute in Washington in the springtime is a double edged sword: on the one hand, this time of year shows off our city at its best; on the other hand, it may cause you to prefer to be outside enjoying the nice weather rather than cooped up in a basement. But I trust, and I hope, that we will be able to hold your interest and compete with the sunshine.

Before I go further, I should give the SEC's standard disclaimer, which you will no doubt hear frequently throughout the course of the Institute: The US Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. These remarks express the author's views and do not necessarily reflect those of the Commission, the Commissioners, or other members of the SEC staff.

This is the fifteenth year that we have offered this Institute, and this year, we are pleased to welcome our largest group of delegates to date. As of last Friday, 132 delegates from 64 countries had registered for the Institute. Some still may be en route. However, this record may have a short life. As I speak, many offices and divisions are in the process of moving into the Commission's new headquarters several blocks away. This room, which was state of the art when it was built, will be replaced by a much larger theatre-style facility that will enable us to offer the Institute and our other international training programs to much larger audiences in future years.

Before it is officially launched, I would like to place the Institute in context and explain why I think it is important that we are all here. All of us gathered in this room are part of an international community of securities regulators. We form an important network that serves to regulate the global market and that is integral to the market's fairness and safety. Over the next two weeks, and even after you return to your offices, I ask that you keep this symbiotic relationship in mind.

Indeed, the international community is becoming an ever more important part of each of our domestic regulation. From my perspective, this has come into stark relief over the past several years, during which time several momentous events have occurred in the US securities market, which have had a significant impact on markets around the world. In 2000, we saw the bursting of an Internet bubble in the United States with broad implications for markets and investors around the world. The US was then hit by the terrorist attacks of September 11, 2001, which caused disruption in our markets of a different kind. Perhaps the most significant event, at least for purposes of this Institute, was the revelation of wrongdoing in major, previously trusted US public companies, beginning with the Enron bankruptcy. Subsequently, we have faced market timing and late trading abuses in our mutual fund industry, abuses associated with allocation practices and sell-side analysts in the IPO market, and most recently, abuses in the New York Stock Exchange specialist system whereby public customers' orders have not received priority. These events have caused many of us to reconsider how, as well as who, we regulate, and to examine the root causes of this unexpected betrayal of the public trust.

Here in the United States, we have undertaken a series of regulatory reforms in response to these instances of misconduct. Much ink has been spilled in newspapers and journals commenting on these reforms. Rather than dwell on the commentary, I would prefer to ask the following question: what was the international reaction? It was clear that the events I described a moment ago would have an impact around the world - mainly by reducing investor confidence in the global securities market. But the international response was not obvious. After all, the events, as well as their largest impact, were at that time confined to the US market.

Yet, inaction was not the response. Rather, the international regulatory community has sought to learn from the events that transpired in the United States. Many jurisdictions, and not just the US, took a good, hard look at their securities regulation to identify weak spots and proceeded to address them. Rather than ignore the lessons taught by the problems of another country, there has been a movement around the world to raise standards and enhance the ability of securities regulators to address deficiencies. We hoped that others have learned not only from the problems we have encountered in the United States market, but also from the timely and comprehensive enforcement actions that US regulators have taken to address these problems

I believe this can be attributed to a general recognition that no country can be sure that what happens elsewhere cannot and will not occur within its own borders. In a globalized market, a regulatory problem in one country can quickly and effortlessly spread to another country. A person with an Internet connection and a telephone in one hemisphere can defraud thousands of people on the other side of the planet. Regulating and policing such a market is a collaborative and multilateral effort.

In this connection I would like to highlight two major developments taking place in the international securities community over the past several years. One has strengthened our ability to respond to wrongdoing in the securities markets. The other will hopefully make wrongdoing more difficult.

While we all would like to prevent wrongdoing, it is perhaps unrealistic to expect complete success, given the dynamism of securities markets and the inventiveness of crooks. Instead, we seek to act promptly, decisively and with force, when problems arise within our borders. But increasingly wrongdoing extends beyond the borders of one country, and investigations with cross border dimensions require international assistance. Indeed, we cannot fully police our domestic securities markets if wrongdoers can escape the effect of our laws by simply crossing our frontiers.

The ultimate international response to cross-border fraud has been the IOSCO Multilateral Memorandum of Understanding. The MOU serves to eliminate impediments to obtaining information and evidence located outside our national boundaries. Since it was finalized in 2002, the MOU has been of crucial importance in a number of multinational investigations, Parmalat just being the latest of these.

The MOU outlines the minimum required of regulators to be considered responsible members of the international regulatory community. To join the MOU, a regulator must, among other things, be able to obtain bank and brokerage records on behalf of its foreign counterparts. Not all jurisdictions have been able to join. However, the MOU is a reminder and an important symbol of a significant international consensus.

The MOU will assist us in responding to wrongdoing, but the international regulatory community is also intent on making wrongdoing more difficult. We have begun to look at the gatekeepers and guardians of the securities markets, including auditors and members of the board of directors, to see where their role might be strengthened to enable them to discern potential problems before they occur in their clients and companies. We also have examined how to hold them more accountable if they fail in these duties.

International collaboration in addressing these issues is important. We live in an age when a company can decide to change its country of incorporation literally overnight. This offers market participants a tremendous opportunity to engage in regulatory arbitrage. To prevent this from occurring, the international community has developed principles, standards, codes of conduct and other benchmarks against which to measure regulation.

The second development I would like to highlight is the fact that we are witnessing a worldwide shift toward more converged regulatory standards, at least in discrete areas. For example, many countries will adopt International Financial Reporting Standards in 2005. At the same time, the Financial Accounting Standards Board and the International Accounting Standards Board are engaged in a convergence project to eliminate the principal differences between the two sets of standards. Convergence of accounting standards will lower the costs for issuers that want to operate across borders. It also will benefit investors and facilitate our oversight of multinational issuers by making financial statements more transparent.

We will never come up with a definitive global regulatory model or the perfect cooperative arrangement - financial services will continually evolve, a regulatory response will be necessary, and individuals will not cease to commit fraud. But we must all continue to cooperate and learn from each other to be effective regulators. That is what remains constant.

In the spirit of international cooperation and community, I would like to offer some thoughts for your time here in Washington. You will hear about a wide array of topics over the next two weeks, and will walk away with several thousand pages worth of reference materials. For the sake of your luggage, most of these are on a CD. We hope the information will prove relevant to your every day work.

But please keep in mind, that some of the greatest resources that you will encounter here at the Institute are seated all around you. They are your colleagues from around the world - each of you brings a unique perspective as well as a wealth of knowledge about your markets. I urge you to take advantage of this resource. During these two weeks, be sure to get to know as many of your counterparts as possible, and keep in touch with them.

With that I thank you for coming to the Program and I look forward to personally meeting all of you.

It is now my great pleasure to introduce Commissioner Roel Campos who will formally welcome you to the Institute.

Commissioner Campos was nominated to the Commission by President George Bush on July 16, 2002 and sworn in as a Commissioner on August 20, 2002.

Prior to being nominated to the Commission, Commissioner Campos owned and operated a communications company in Houston, Texas. He began his career, however, with the government, serving as an officer in the US Air Force. For the next 15 years, he worked in Los Angeles, California for major law firms as a corporate and securities lawyer and litigator. Commissioner Campos served in the government for a second time beginning in 1985 as a federal prosecutor for several years in the US Attorney's Office in Los Angeles where he successfully prosecuted complex and violent narcotics cartels and major government contractors for fraudulent conduct.

Commissioner Campos earned his law degree from Harvard Law School, a Masters of Business Administration from UCLA and an undergraduate degree from the US Air Force Academy.

Let me add a personal note that we in the Office of International Affairs are especially pleased that Commissioner Campos has agreed to give the Welcoming Remarks since he has been a tremendous supporter and contributor to the Commission's international programs. He represents the Commission before the International Organization of Securities Commissions and the Council of Securities Regulators of the Americas and has superbly led a number of the recent initiatives undertaken by those bodies. Commissioner Campos.